So the IOUs are really 0% bonds? Interesting. I wonder if they’ve figured out how that is going to effect their already crappy bond rating.
The IOU's pay 3.75% (annual rate), supposedly tax-exempt. Perhaps that is why some banks are honoring deposits of IOU's -- for in addition to retaining customers, matching the other banks' policies, and not raising the ire of the state government, maybe the banks hope to collect the higher interest rate? If eventually the IOU's bounce, the banks can always take the money back from the customers and possibly charge them NSF/bounced-check fees.
But, unless you're a bank, bonds are better investments, unless one can get a good discount off the face value of the IOU's. Bonds are paid before these IOU's, and given CA's declining credit rating, the bond yields may even be higher.